Popularity contests and the potential for forward-looking outperformance (or under-performance) have been very topical subjects of late around Australia although perhaps more focused on the world of federal and state politics rather than on mineral commodity prices.
To shift the focus away from Gillard, Rudd, Abbott – and even from Katter – and towards the far more interesting sphere of future mineral prices, your scribe has been in close contact with his analyst colleagues at CRU Group.
So with the help of the commodity teams at CRU Group –Strictly Boardroom ventures not just one popularity poll this week but some 25 separate forecasts*!
That’s one price forecast for each of the periodic table-wide tour of mineral commodities listed below.
To the mechanics of compiling the 2015 outlook – these were straightforward but recounted here for the record and for clarity.
Firstly, the respective CRU analysts across the various markets compiled their forecast average mineral market prices for the 2015 calendar year.
Secondly, a recent reference date was chosen – set at the average price for the 2011 fourth-quarter.
Finally, a quick comparison of the 2015 to the 2011 Q4 benchmark gives the directional indicator – whether a particular market will go up or down.
The usual words of caution apply at this juncture to avoid misinterpretation of these directional price indicators – a higher forecast for 2015 above prevailing Q4 2011 (which were a low point for calendar 2011) does not imply a steadily rising commodity price over the intervening period.
Likewise, a lower price in 2015 than the 2011 benchmark does not imply a steady fall either.
Gold, for example, is actually forecast to rise in 2012 (but then fall back by 2015) – a commonly held view amongst analysts beyond those at CRU Group but also a view held by the CRU precious metals team too.
Furthermore, lower prices do not mean that prices will fall below costs but lower prices do however imply reduced margins (everything else being equal to use economic-speak) – especially, as forecast in several instances, in that production costs may further escalate from early 2012 levels.
To the directional outcomes then – the CRU crystal ball is loaded in favour of the bulls – having previously been split equally between bulls and bears (see Strictly Boardroom December 12, 2011).
Sixteen markets are forecast to see higher average 2015 prices than 2011 Q4 – and nine other markets are forecast as being somewhat lower in 2015 than at present.
Here is the split – first the winners, those set to rise in price.
Going up: the bulls (in order of performance, starting with the strongest)
- Met coke
- Iron ore
Now to those commodities set to come under downward price pressure in 2015 compared to the present.
Coming down: the bears (starting with those commodities close to retaining parity to Q4 2011 prices)
- Sulphuric acid
- Coking coal
The star performer for the period is palladium which leads the chart of those commodities set to rise in price.
In fact, CRU Group forecast an 85% increase for palladium by 2015 (benchmarked to Q4 2011).
Why? Three events will combine to create this price path.
- Consumption will continue to grow driven by the growth of the petrol auto sector demanding palladium-containing catalytic converters
- Existing mine production will falter with large players, such a Norilsk, maintaining rather than increasing their production
- Most importantly, Russia will stop selling surplus palladium from its strategic stockpiles creating a market deficit that will take some years to address.
Allan Trench is a Professor at Curtin Graduate School of Business and Research, Professor (Value and Risk) at the Centre for Exploration Targeting, University of Western Australia, a non-executive director of several resource sector companies and the Perth representative for CRU Strategies, a division of independent metals and mining advisory CRU Group (firstname.lastname@example.org).
*With thanks to Peter Ghilchik and Lucent Nicholson – CRU Group – email@example.com
This article first appeared in ILN's sister publication MiningNews.net.